82. JPMorgan's $2 Billion Loss, Explained

JPMorgan has more than enough money to cover the loss it announced yesterday. The bank made nearly $6 billion in profit in the first quarter of this year alone. And other profitable trades mean the bank's current net trading loss is less than $1 billion. But the news is likely to have an impact beyond the numbers. It will hurt JPMorgan's reputation. Less than a month ago, CEO Jamie Dimon called media coverage of this trade "a tempest in a teapot."

Cut to yesterday's conference call: "The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought," Dimon said. "There were many errors, sloppiness and bad judgment."

JPMorgan has widely been viewed as the best risk manager among the big banks. Throughout the financial crisis, JPMorgan made a profit every quarter. This mistake will not only dent this reputation. it will give more credibility to those arguing for a narrower implementation of the Volcker Rule to restrict the trades banks can make with their own money...